Doug,
TDM and X.25 packet switching are older technologies that represent NN's core business a few years ago. These areas having been maturing for a while, while their replacement, ATM has been ramping up and taking over the position of "core business". However, TDM still represents half of their revenues in the current transition phase. So it appears that the TDM business has gone from "maturing" to "declining", and the effect on current results is still strong. However, we should all remember that the reason to buy NN is based on FUTURE results, which will increasingly be dominated by ATM sales. The ATM model appears set to become the industry standard in the WAN and backbone areas. Newbridge is well positioned to benefit from this, as are ASND, NT and CSCO.
Long term holders should worry less about short term TDM problems, and focus more on ATM issues. Is NN still at the forefront? Will ATM rollout at the carriers be slowed down or speeded up do to Y2K issues? Is the ATM revenue growth still increasing?
NN has mentioned several times that it hopes to capitalize on it's huge TDM installed base by getting these long-standing customers to upgrade to ATM. I'd like to know how this is going. Is the CSCO win at US West a case of a NN TDM customer buying CSCO ATM instead of NN ATM? If so, why?
When ASND said in it's conference call that it sees NT and NN mainly in competitions, is that just because they "hate" CSCO and are trying to "dis" them, or is CSCO still not a real threat in ATM?
What about Lucent's big ATM plans? They are a few steps behind, but are trying to catch up in a hurry and will be a force to be reckoned with.
On another note, somebody pointed out that the 36120 is responsible for some of the current decline, and incorrectly stated that this is an ATM switch. It is not - it's an X.25 packet switch.
In summary, I'm saying that yes this company faces long term challenges, but lets make sure we focus on what the real challenges are. TDM is history. Sure it's been a nice cash cow until very recently, but it will not drive the long term performance of this company. NN is a long term ATM play.
And I agree that declining margins are frustrating. I'd like to see management focus on keeping costs under control, especially as ATM growth struggles to overcome TDM declines. Part of the problem is likely price competition on older TDM products. ATM products being newer likely have superior margins, and hopefully we'll see gross margins improve as ATM becomes more and more dominant.
All IMHO,
Andrew |
